Homestyle Direct, LLC v. Department of Human Services

No. 45 October 3, 2013 253

IN THE SUPREME COURT OF THE

STATE OF OREGON

HOMESTYLE DIRECT, LLC,

Respondent on Review,

v.

DEPARTMENT OF HUMAN SERVICES,

Petitioner on Review.

(DHS 20091957; CA A145136; SC S059874)

En Banc

On review from the Court of Appeals.*

Argued and submitted September 21, 2012; resubmitted

January 7, 2013.

Cecil A. Reniche-Smith, Assistant Attorney General,

Salem, argued the cause and filed the brief for petitioner on

review. With her on the brief were John R. Kroger, Attorney

General, and Anna M. Joyce, Solicitor General.

Samuel E. Sears of Larimer & Sears, Salem, argued the

cause and filed the brief for respondent on review.

LANDAU, J.

The decision of the Court of Appeals is reversed. The final

order of the Department of Human Services is affirmed.

______________

* Judicial review of the final order of the Oregon Department of Human

Services. 245 Or App 598, 263 P3d 1118 (2011).

254 Homestyle Direct, LLC v. DHS

The Department of Human Services (department) revoked a contractor’s

eligibility to provide home delivered meals to Medicaid clients because the

contractor breached its provider agreement with the department by failing to

comply with certain food preparation and delivery standards. The contractor

objected to the revocation, arguing that the standards in the provider

agreement were not enforceable because they should have been promulgated as

administrative rules. The department rejected those arguments. The Court of

Appeals reversed, concluding that the department cannot enforce unpromulgated

rules merely by making them terms of a contract. Held: (1) The matter was

not rendered moot by the department’s later adoption of a temporary rule that

expired; (2) the provider agreement between the contractor and the department

constituted an enforceable contract; and (3) under Coats v. ODOT, 334 Or 587, 54

P3d 610 (2002), the only relevant question was whether the terms of the provider

agreement were binding on the contractor as contract terms, not whether the food

preparation and delivery standards were valid as administrative rules.

The decision of the Court of Appeals is reversed. The final order of the

Department of Human Services is affirmed.

Cite as 354 Or 253 (2013) 255

LANDAU, J.

This is a contested-case proceeding in which the

Department of Human Services (department or DHS)

revoked a contractor’s eligibility to provide home delivered

meals to Medicaid clients because the contractor breached

its contract with the department by failing to comply with

certain food preparation and delivery standards. The con-

tractor, Homestyle Direct, objected to the revocation, argu-

ing that the standards in the contract are not enforceable

because they should have been promulgated as administrative

rules. The department rejected those arguments, concluding

that whether the standards could have been promulgated as

administrative rules is irrelevant to their enforceability as

terms of a contract. The Court of Appeals reversed on the

ground that, notwithstanding this court’s decision in Coats

v. ODOT, 334 Or 587, 54 P3d 610 (2002), the department can-

not enforce unpromulgated rules as terms of a contract. For

the reasons that follow, we reverse the decision of the Court

of Appeals and affirm the final order of the department.

I. BACKGROUND

A.  The Home Delivered Meals Program

Title XIX of the Social Security Act, 42 USC § 1396

et seq., authorizes federal grants to states for medical assis-

tance, known as Medicaid, to low-income persons who are age

65 or older, disabled, or members of families with dependent

children. See 42 CFR § 430.0. Within a broad set of federal

rules, states decide “eligible groups, types and ranges of ser-

vices, payment levels for services, and administrative and

operating procedures.” Id. A participating state is required

to submit a plan to the federal government “describing

the nature and scope of its Medicaid program and giving

assurances that it will be administered in conformity with”

federal law. 42 CFR § 430.10. The states may contract with

providers to furnish services under its Medicaid program.

See 42 CFR 431.107(b). Such agreements must include com-

mitments by the providers to keep adequate records, make

certain disclosures, and comply with other standards. Id.

DHS administers such a Medicaid program. The

program includes, among other things, a Home Delivered

256 Homestyle Direct, LLC v. DHS

Meals (HDM) Program, which provides meals to disabled

homebound individuals as a subsidized benefit under the

Medicaid program. DHS contracts with nongovernment

agency providers to prepare and deliver the meals, which

DHS reimburses directly for their services. To qualify as

an HDM provider, an individual or organization must meet

applicable regulatory and licensing standards. See OAR 410-

120-1260(5) (2008).1 Providers must submit an application

to DHS for agency approval and must sign a “Provider

Agreement” form to obtain reimbursement for their services.

The signed form “constitutes agreement * * * to comply with

all applicable * * * Provider rules and federal and state laws

and regulations.” OAR 410-120-1260(2). On completion of

the application and execution of the Provider Agreement, the

department issues a “provider number” to the applicant. OAR

410-120-1260(7). Issuance of the provider number “estab-

lishes enrollment of an individual or organization as a Pro-

vider for the specific category(ies) of services covered by the

* * * application.” OAR 410-120-1260(9).

Under the applicable administrative rules, the pro-

vider may terminate enrollment in the service program at

any time. OAR 410-120-1260(15)(a). The department is also

authorized to terminate or suspend a provider from enroll-

ment in the program for, among other reasons, “[b]reaches

of [the p]rovider agreement.” OAR 410-120-1260(15)(b)(A).

When the department determines that a provider has failed

to meet the requirements of the agreement, it is authorized

to suspend the provider number immediately. OAR 410-120-

1260(16). The provider then is entitled to a contested case

hearing to determine whether the provider number should

be revoked. Id.

B.  Facts

The relevant facts are not in dispute. Homestyle is

an Idaho corporation that prepares frozen meals. In 2005,

it applied for and obtained a provider number authorizing

it to provide home-delivered meals to Medicaid recipients

1

OAR 410-120-1260 has since been amended. Those amendments, however,

are not relevant to the disposition of this case. All references to the administrative

rules in this opinion are to those rules in effect at the time of the events in this

case.

Cite as 354 Or 253 (2013) 257

in Oregon. Homestyle prepared frozen meals and shipped

them to Medicaid clients once or twice each month by United

Parcel Service. The department then reimbursed Homestyle

for the meals using Medicaid funds.

In October 2008, the department adopted new

standards governing the HDM program. Among other things, the

new HDM standards impose “[n]utrition [p]rovider [b]asic

[r]equirements.” Those include a requirement that “[n]utri-

tion providers must be able to provide at least one hot meal

or other appropriate meal at least once a day, five or more

days per week.” If the provider believes that delivering five

or more hot meals each week is not feasible, the providers

“must provide a written request to the State agency for

approval of a lesser frequency of meal service.” The meal pro-

vider is further required to “develop procedures for regularly

(does not have to be daily) taking and documenting meal

temperatures of the last meal served on each route.” The new

HDM standards note that the state health code requires a

hot temperature of at least 140 degrees Fahrenheit.

In November 2008, the department notified all HDM

providers of the new standards by sending a letter to each

provider with a packet of documents including the new stan-

dards. The packet also included a new provider enrollment

form. The department advised the recipients of the packet

that each provider was required to complete the new provider

enrollment form to continue receiving reimbursement for

delivering HDM meals after January 31, 2009. The depart-

ment stated that, after that date, providers who had not

completed a new provider enrollment form and agreed to the

new terms would no longer be eligible to participate in the

program. It also stated that, “[b]y signing the provider

enrollment form, providers agree to meet the * * * general pro-

vider standards as well as the attached Nutrition Program

Standards. * * * Compliance is mandatory for payment.”

The new provider enrollment form consisted of a

single page, which included areas for providers to fill in cur-

rent business and contact information, as well as a signa-

ture line. Immediately below the signature line, the form

stated: “The Home Delivered Meal provider must comply

with *  * the Medicaid Nutrition Standards published at

*

258 Homestyle Direct, LLC v. DHS

http://www.dhs.state.or.us/spd/tools/cm/hdm/standards.pdf

when providing Home Delivered Meals paid for by Medicaid.

Compliance is mandatory for payment.”

On November 21, 2008, Homestyle’s owner, completed

and signed the new provider enrollment form and returned the

form to the department. Following that, however, Homestyle

continued to prepare frozen meals for home delivery once

or twice each month to Oregon Medicaid clients. It did not

submit a written request to the department for permission

to deliver meals less frequently than the HDM standards

required. Homestyle also continued to have its frozen meals

delivered by UPS package delivery service, whose drivers

did not check the temperature of the food inside the delivered

packages.

In April 2009, the Department of Human Services

determined that Homestyle was not complying with the new

HDM standards because, among other things, it had failed

to provide hot meals, failed to provide meals at least five

days each week without first seeking authorization to do so,

and failed to perform temperature checks on delivered food.

DHS issued a notice to Homestyle that it intended to revoke

Homestyle’s provider number, ending its right to receive reim-

bursement. Homestyle requested a contested case hearing

as provided in OAR 410-120-1260(16).

At the hearing, Homestyle did not dispute that it had

failed to meet the HDM standards as DHS had contended.

Instead, it asserted that those standards were unenforceable

because they amounted to unpromulgated administrative

rules. In the alternative, Homestyle asserted that it had

not breached the provider agreement because the provider

agreement did not amount to a contract in the first place.

According to Homestyle, the agreement amounted to an

unlawful contract of adhesion and, in any event, lacked con-

sideration.

In response, DHS first asserted that whether it could

have promulgated the HDM standards as formal administrative

rules was irrelevant, because, under this court’s decision in

Coats, the standards were enforceable terms of a contract

that Homestyle freely agreed to meet. DHS further asserted

Cite as 354 Or 253 (2013) 259

that the provider agreement is an enforceable contract,

secured by the consideration of reimbursement for delivery

services performed.

The administrative law judge (ALJ) held in favor

of DHS. The ALJ first concluded that the HDM standards

were enforceable as contract terms, whether or not they also

could have been promulgated as administrative rules:

“*  * I find no authority that prevents an agency from

*

including terms in a contract that can be construed as

unpromulgated rules. While the new HDM standards do

meet the statutory definition of rules, because the Depart-

ment is attempting to enforce the standards as contractual

terms in this matter I do not address their validity as rules

under the [Administrative Procedures Act].”

The ALJ further concluded that the provider agreement

constituted an enforceable contract, which Homestyle had

breached in each of the particulars that DHS had asserted.

DHS issued a final order adopting the ALJ’s decision

and order and revoking Homestyle’s provider number.

Homestyle sought judicial review of that final order

in the Court of Appeals, which reversed. Homestyle Direct,

LLC v. DHS, 245 Or App 598, 600, 263 P3d 1118 (2011).

The court concluded that the HDM standards amounted to

unenforceable, unpromulgated administrative rules. DHS,

the court explained, “cannot enforce its own unpromulgated

standards by putting them in the provider agreement and

then enforcing the rule that allows sanctions for noncom-

pliance with that agreement. In substance, if not in form, that

is an attempt to enforce an invalid rule.” Id. at 605. The court

acknowledged that this court’s decision in Coats could be

read to support DHS’s position. Id. at 604. Nevertheless, the

court concluded that Coats was distinguishable, for reasons

that we detail below. Having determined that the HDM

standards were unenforceable, the court did not address

Homestyle’s argument that the provider agreement was not

an enforceable contract.

DHS sought review in this court. In the meantime,

in response to the decision of the Court of Appeals, DHS

260 Homestyle Direct, LLC v. DHS

adopted a temporary administrative rule that incorporated

the HDM standards. It then notified this court that its

adoption of the temporary rule might render the case moot.

In light of that information, this court asked the parties

to address a series of questions related to justiciability.

In response, DHS noted that the temporary rule was set

to expire on June 13, 2012, and that it did not intend to

promulgate a permanent rule to replace it. The temporary

rule has since expired, and DHS has not promulgated a

permanent rule adopting the HDM standards.

II. ANALYSIS

A.  Mootness

We begin, as we must, with the issue of justiciability.

This court has explained that the judicial power granted

to the courts under Article VII (Amended) of the Oregon

Constitution is “limited to the adjudication of an existing

controversy.” Yancy v. Shatzer, 337 Or 345, 362, 97 P3d 1161

(2004). Consequently, Oregon courts “have no authority to

decide moot cases.” State v. Hemenway, 353 Or 498, 500,

302 P3d 413 (2013). A justiciable, nonmoot case is one in

which “the parties to the controversy * * * have adverse legal

interests and the court’s decision in the matter [will] have

some practical effect on the rights of the parties.” State v.

Snyder, 337 Or 410, 418, 97 P3d 1181 (2004).

In this case, the parties contend that, notwithstand-

ing the temporary adoption of temporary rules, the matter

remains justiciable at this point. We agree. There is no ques-

tion that the parties have adverse interests; both DHS and

Homestyle have vigorously and ably advocated their opposing

viewpoints. There is also no question that this court could grant

effective relief to the parties. If we agree with the department,

then its revocation of Homestyle’s provider number will stand,

and it will not be required to promulgate its HDM standards

as administrative rules to enforce them against providers in

the HDM program. Conversely, if we agree with Homestyle,

then the department’s order will be vacated.

An interesting question arises whether the matter

was justiciable during the time that the temporary rules

Cite as 354 Or 253 (2013) 261

were in effect. We need not address that question in this

case, however, because those temporary rules have expired.

B.  Merits

On review, the parties essentially reprise the argu-

ments that they have made in previous stages of this con-

tested case proceeding. Homestyle contends that the HDM

standards are unenforceable, unpromulgated rules, as the

Court of Appeals held, and that, in any event, the provider

agreement did not constitute an enforceable contract. DHS,

on the other hand, contends that the Court of Appeals erred

in failing to apply this court’s decision in Coats and in

concluding that it may not enforce the HDM standards as

contract terms.

1.  Whether the Provider Agreement Is an Enforceable

Contract

We begin with the question whether the provider

agreement is an enforceable contract in the first place. If it

is not, then that obviates the need to address whether the

HDM standards are enforceable as contract terms.

Homestyle begins by arguing that the 2008 pro-

vider agreement was not an enforceable contract. According

to Homestyle, the form is simply “an administrative form

designed to collect necessary information regarding pro-

viders” and is not subject to the public contracting require-

ments of the state public contracting law.

To begin with, it is not clear that Homestyle pre-

served that particular contention. Before the ALJ and the

Court of Appeals, Homestyle argued that the provider agree-

ment was not an enforceable contract for two reasons—first,

because it amounted to an unlawful contract of adhesion

(an argument that it does not advance before this court),

and second, because it lacked consideration. There was no

mention of the argument that it now asserts, based on the

nature of the provider agreement form itself.

At all events, the argument is unavailing. Even

assuming for the sake of argument that Homestyle is correct

262 Homestyle Direct, LLC v. DHS

that the form was designed to collect necessary information

from providers, it cannot be contested that the form also

unambiguously states that “[t]he Home Delivered Meal

provider must comply with *  * the [HDM] standards” and

*

that “[c]ompliance is mandatory for payment.” Moreover,

the rules that require provider agreements state that the

signed form “constitutes agreement *  * to comply with all

*

applicable * * * Provider rules and federal and state laws and

regulations.” OAR 410-120-1260(2). Thus, whatever addi-

tional purposes the form may serve, it is clear that it con-

stitutes an enforceable agreement.

In the alternative, Homestyle argues that the pur-

ported agreement fails for want of consideration. In Homestyle’s

view, since 2005, it had operated under a provider agreement,

the terms of which the department attempted to alter in

2008 by simply substituting new HDM standards. The new

standards, Homestyle argues, amounted to an attempted

modification of the existing contract, which requires new con-

sideration. DHS argues, and the ALJ concluded, that the

department terminated the 2005 provider agreement in

2008 and then offered providers a new agreement with new

terms fully supported by the consideration of reimbursement

in exchange for agreement to comply with its terms. We

agree with DHS.

The formation of a contract requires a “bargain in

which there is a manifestation of mutual assent to the

exchange and a consideration.” Restatement (Second) of Con-

tracts § 17(1) (1981). Mutual assent, historically referred to

as the “meeting of the minds,” may be expressed in words or

inferred from the actions of the parties. Bennett v. Farmers

Ins. Co., 332 Or 138, 148, 26 P3d 785 (2001). Consideration

is defined as “some right, interest, profit or benefit or some

forbearance, deteriment, loss or responsibility given, suffered

or undertaken by the other.” Shelley v. Portland Tug & Barge

Co., 158 Or 377, 387, 76 P2d 477 (1938).

In this case, as we have described, in November

2008, DHS notified its providers that they would no longer be

eligible for Medicaid reimbursement for home delivery of meals

after January 31, 2009; the existing provider agreements, in

other words, were terminated. There is no suggestion that

Cite as 354 Or 253 (2013) 263

DHS lacked authority to do that. DHS then extended an

offer to enter into a new provider agreement. It included in

the information packet that it sent to all providers a new

provider enrollment application, which incorporated the new

HDM standards and expressly stated that participation in

the reimbursement program was conditioned on agreement

to comply with those standards. Homestyle completed that

new provider enrollment application, signed it, and returned

it to DHS. The parties thus manifested the required mutual

assent and satisfied the requisite element of consideration

when DHS offered to provide reimbursement in exchange for

Homestyle’s agreement to provide meals under the HDM pro-

gram and comply with the HDM standards, and Homestyle

accepted that offer by signing and returning the new provider

enrollment application, which expressly stated those terms.

2.  Whether the HDM Standards Are Enforceable as

Contract Terms

We turn, then, to the issue of the enforceability of

the HDM standards. Because the arguments of both parties,

as well as the reasoning of the Court of Appeals, largely turn

on the applicability of this court’s opinion in Coats, we begin

with a review of that case.

The plaintiff in Coats was a contractor who con-

structed and repaired highways in Oregon. 334 Or at 589. The

plaintiff contracted with the Oregon Department of Trans-

portation to pave a portion of a state highway. The contract

required the plaintiff to pay its workers in accordance with

wage and hour rules that had been adopted by the Oregon

Bureau of Labor and Industries (BOLI). Id. at 590. The

plaintiff did not comply with those rules. As a result, ODOT

withheld payment under the contract. Id. at 591.

The plaintiff responded by bringing an action against

ODOT for breach of contract in circuit court, alleging that

the BOLI wage and hour rules were invalid because they

were predicated on a misinterpretation of the applicable

wage and hour statutes. Id. at 591-92. ODOT counterclaimed

for breach of contract, and both parties moved for summary

judgment. Id. at 592.

264 Homestyle Direct, LLC v. DHS

The plaintiff argued that ODOT could not lawfully

bind him to comply with invalid BOLI wage and hour rules.

ODOT responded that, among other things, even if the BOLI

rules were invalid, the plaintiff was bound to comply with

them as terms of his highway contract. Id. at 593. The trial

court granted the plaintiff’s motion, denied ODOT’s motion,

and entered judgment accordingly. Id. The Court of Appeals

affirmed, agreeing with the plaintiff that the BOLI wage and

hour rules were invalid, at least as applied to the plaintiff,

because that application was at odds with relevant wage

and hour statutes. Coats v. ODOT, 170 Or App 32, 40-41,

11 P3d 258 (2000).

This court reversed, holding that the lower courts

lacked subject matter jurisdiction to address the validity of

BOLI’s administrative rule. The court explained that, as

a general rule, one who seeks to challenge the validity of

an administrative rule must do so in accordance with the

rule-challenge provisions of the APA. 334 Or at 595. The

plaintiff had not done that. The court noted, however, that

an earlier decision—Hay v. Dept. of Transportation, 301 Or

129, 719 P2d 860 (1986)—had recognized an exception to

that general rule: The validity of a rule may be challenged

in a civil action if validity is properly “ ‘at issue.’ ” Coats, 334

Or at 596 (quoting Hay, 301 Or at 138). The plaintiff in Coats

invoked that exception, arguing that his breach of contract

claim placed the validity of BOLI’s rules “at issue.” Id.

The court rejected that argument, concluding that

the validity of BOLI’s rules was simply “not relevant.” Id.

at 597. Even if the rules could not be enforced against the

plaintiff as rules, the court explained, they could still be

enforced against him as contract terms:

“Plaintiff * * * seeks to challenge the validity of state agency

rules that, earlier, he had agreed to as contract terms. Even

if plaintiff could not be forced to comply with those rules by

operation of law, he nonetheless could bind himself to do

so by contract, as he did here. Instead, the only relevant

question is whether BOLI’s rules are applicable to plaintiff

as contract terms. The validity of BOLI’s rules, therefore, is

not relevant to, or ‘at issue’ in, plaintiff’s breach of contract

action.”

Id. (emphasis in original; citations and footnotes omitted).

Cite as 354 Or 253 (2013) 265

Coats squarely controls this dispute. As in Coats, this

case involves what is essentially a breach of contract action:

DHS terminated Homestyle’s provider number because of

“[b]reaches of [the p]rovider agreement.” OAR 410-120-1260

(15)(b)(A). As in Coats, even assuming that Homestyle could

not be forced to comply with the HDM standards by operation

of law—that is, as rules—it nonetheless could bind itself to

do so by contract, as it did here. Accordingly, as in Coats,

the only relevant question is whether the HDM standards

are applicable to Homestyle as contract terms. It necessarily

follows that, as in Coats, the validity of the HDM standards,

as rules, is irrelevant.

As we have noted, the Court of Appeals, while

acknowledging that “broad language” in Coats supports the

notion that the validity of the HDM standards as rules is

irrelevant, nevertheless concluded that the decision was dis-

tinguishable. The court identified four rationales for that

conclusion. With respect, however, we find none of those

rationales to be persuasive.

First, the Court of Appeals noted that the BOLI

rules were invalid for a different reason from the invalid

HDM standards at issue in this case. According to the court,

“there is a difference between a rule that may be invalid

because it results from an agency’s misinterpretation of a

statute, the situation in Coats, and a rule that is invalid

because it was never promulgated.” Homestyle, 245 Or App

at 604. In the view of the Court of Appeals, DHS’s failure

to promulgate the HDM standards as rules implicated “one

of the basic precepts of administrative law: A rule that can

be brought to bear so as to impose serious disabilities on

citizens must, at the least, be subjected to some level of public

scrutiny before it goes into effect.” Id. (footnote omitted).

At the outset, we note that the court’s rationale pro-

ceeds from a mistaken premise. The court is not quite correct

in asserting that, before any rule can go into effect, it must

be subject to public scrutiny. Merely because a given admin-

istrative standard or policy satisfies the statutory definition

of a “rule” under the Administrative Procures Act (APA)

does not necessarily mean that it is invalid unless preceded

266 Homestyle Direct, LLC v. DHS

by notice and comment rulemaking proceedings. Most public

contracts, for example, are exempt from rulemaking pro-

cedures, even if they contain terms that otherwise qualify as

“rules.” See ORS 183.335(10). In addition, the APA provides

that agencies are authorized to adopt general policies that

otherwise would qualify as “rules” during contested case pro-

ceedings, without going through notice-and-comment rule-

making. See ORS 183.355(5) (“[I]f an agency, in disposing of

a contested case, announces in its decision the adoption of a

general policy applicable to such case and subsequent cases

of like nature, the agency may rely upon such decision in

disposition of later cases.”). Whether an agency is required

to adopt a policy that qualifies as a “rule” solely by means of

rulemaking procedures depends on whether the legislature

has declared that rulemaking is the sole acceptable means

of adopting the particular policy at issue. See, e.g., Forelaws

on Board v. Energy Fac. Siting Council, 306 Or 205, 214,

760 P2d 212 (1988) (“If an agency is required to adopt a rule

through rulemaking proceedings, that requirement must

be found through analysis of the specific statutory scheme

under which an agency operates and the nature of the rule

that the agency wishes to adopt.”); Trebesch v. Employment

Division, 300 Or 264, 267, 710 P2d 136 (1985) (Whether an

agency is required to engage in rulemaking may not be

“divined from the administrative procedures act;” rather,

“[t]he authorizing statutes will specify whether rulemaking

or adjudication authority, or both, are delegated to the

agency and will indicate the agency’s tasks, the breadth

of the agency’s discretion to carry out these tasks, and the

process by which they are to be accomplished.”).

Aside from that, the notion that the reason for the

invalidity of the rule makes a difference cannot be reconciled

with the stated rationale of Coats. This court explained that

whether the BOLI rules were invalid was irrelevant because

the parties had bound themselves to comply with the same

obligations by contract. Because the obligations were sep-

arately enforceable by contract, the reason for the possible

invalidity of the same obligation as an administrative rule

simply did not matter.

Cite as 354 Or 253 (2013) 267

Second, the Court of Appeals suggested that the

HDM standards at issue in this case are “significantly more

burdensome” than the allegedly invalid rule in Coats. 245 Or

App at 604. The relative burden that those rules imposed,

however, was not mentioned as a relevant consideration in

Coats, and we do not understand how it would be relevant to

Coats’s stated rationale, which was that parties are bound

to comply with obligations that they agree to comply with by

contract, regardless of whether they might also be bound to

comply for other reasons.

Third, the Court of Appeals differentiated between

the focus of the breach of contract action in Coats and the

focus of this action, which the court characterized as a “rule

challenge as part of the defense to an agency action to

enforce a rule.” Id. The court stated that, in a breach of con-

tract action, the focus is on “whether the parties to the

contract have honored the mutual obligations that they

have undertaken.” Id. The court observed that, “[i]n a rule

challenge that is a part of the defense to an agency action to

enforce a rule, * * * the focus is on whether the agency’s rule

is within its authority, and the fact that the rule has been

rebranded as a contract term does not alter that basic fact.”

Id.

Again, the court’s reasoning proceeds from a mis-

taken premise, which is that DHS has merely “rebranded”

the HDM standards as contract terms. The fact is that they

were contract terms. Aside from that, it is not clear to us

that the action in this case is properly characterized as a

“rule enforcement” proceeding. The assumption that it is

a rule enforcement proceeding appears to beg the ques-

tion whether it is an administrative rule or a contract term

that is at issue in the first place. Moreover, contrary to the

characterization of the Court of Appeals, Homestyle has not

asserted a rule challenge as a defense to an agency action to

enforce a rule. DHS did not initiate this action to enforce any

administrative rule. Homestyle initiated the contested case

proceeding to challenge DHS’s revocation of Homestyle’s

provider number because of its “[b]reach of [the] [p]rovider

agreement.”

268 Homestyle Direct, LLC v. DHS

Fourth, and relatedly, the Court of Appeals com-

pared the relatively attenuated connection between the

invalidity of the BOLI rules and the breach of contract

action in Coats with the more direct connection between the

invalidity of the HDM standards and the DHS action in this

case. “In an agency action to enforce a contract term that is

itself an invalid rule,” the court reasoned, “the connection is

direct.” Id. at 597 (emphasis omitted).

Once again, the Court of Appeals assumed that DHS

initiated this action to enforce an administrative rule, which

is incorrect. Moreover, even assuming that this is, as the

court characterized it, “an agency action to enforce a contract

term that is itself an invalid rule,” the fact remains that,

under Coats, the validity or invalidity of a rule as a rule is

irrelevant if the agency seeks to enforce the obligation as a

contract term.

Homestyle offers its own rationale for distinguishing

Coats. According to Homestyle, Coats “should be viewed as an

aberration” and should be narrowly confined to its facts. In

particular, Homestyle emphasizes that the contract in Coats

was a “bilateral bargained-for-exchange contract,” while the

contract at issue in this case “can, at best, be described as a

series of unilateral contracts.” In support of that proposition,

Homestyle cites this court’s opinion in Pharmaceutical Ass’n

v. Welfare Com., 248 Or 60, 432 P2d 296 (1967). The distinc tion

is important, Homestyle explains, because, in a unilateral

contract such as this one, “the state agency enjoys an unequal

bargaining position.” In Homestyle’s view, that unequal bar-

gaining position leaves contracting parties with no recourse

but the rulemaking safeguards of the APA, should they wish

to contest particular terms of the agreement.

Homestyle’s argument, too, is predicated on a mis-

taken premise, namely, that the agreement in this case is

a unilateral contract. A unilateral contract is one in which

one party makes a promise in return for consideration other

than a promise. Restatement (Second) of Contracts § 45 (1981).

Pharmaceutical Ass’n provides an example. In that case, the

State Public Welfare Commission simply offered to reim-

burse any pharmacist that provided prescription drugs to

eligible recipients of public assistance for stipulated prices

Cite as 354 Or 253 (2013) 269

published in a “Drug Guide”; the Commission required no

promise or commitment in advance. 248 Or at 64-65. As the

court explained:

“We think it is clear that * * * we are dealing here with

a unilateral contract, or, to be more exact, a series of such

contracts. The Commission, through the Drug Guide, made

a continuing offer to the druggists to pay them stipulated

prices for drugs dispensed to eligible recipients of public

assistance and each and every such transaction carried

out by the druggists in accordance with the regulations in

the Drug Guide constituted acceptance of the offer and an

executed contract supported by valuable consideration.”

Id. at 67.

This is not such a case. The provider agreement at

issue in this case expressly consisted of a one promise in

exchange for another: DHS agreed to provide Medicaid

reimbursement in exchange for Homestyle’s agreement to

comply with, among other things, the HDM standards in

delivering meals to recipients. Thus, the agreement in this

case is not a unilateral contract of the sort at issue in

Pharmaceutical Ass’n. It is, instead, the same sort of bilateral

contract that was at issue in Coats.

Finally, Homestyle argues that Coats is distin-

guishable because the contracting party in that case “was

apparently aware of ODOT’s interpretation of the contested

rule before entering into the contract,” while in this case,

“Homestyle did not have actual knowledge of the new stan-

dards until receiving a letter indicating that they were in

violation of the standards.” According to Homestyle, “[t]o

the extent that Coats provides a judicially created excep-

tion to the general statutory rulemaking requirements, its

holding should be limited” to cases in which the contracting

parties had notice of the terms an agency seeks to enforce by

contract.

Once again, Homestyle appears to be advancing an

argument for the first time on review; we have searched the

record in vain for any such argument made to the ALJ or to

the Court of Appeals. In any event, the argument fails. As

we have noted, it is undisputed that DHS notified all HDM

providers of the new standards in November 2008, a full

270 Homestyle Direct, LLC v. DHS

two months before the new standards were scheduled to go

into effect. The notification included a packet of information

that contained a copy of the new standards, a new provider

enrollment form, and a cover letter explaining the new rules,

declaring that, “[b]y signing the provider enrollment form,

providers agree to meet the *  * [HDM] standards,” and

*

warning that “[c]ompliance is mandatory for payment.” It

is further undisputed that Homestyle received that packet

of information and that its owner signed and returned the

new provider enrollment form. We reject Homestyle’s final

argument without further discussion.

In sum, we conclude that department’s final order

correctly determined both that the 2008 provider agreement

was an enforceable contract and that the HDM standards

with which the agreement required compliance were enforce-

able as terms of that agreement. The Court of Appeals erred in

concluding that those standards were unenforceable because

they were unpromulgated administrative rules.

The decision of the Court of Appeals is reversed.

The final order of the Department of Human Services is

affirmed.